the link between CSR and profit

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Discussion about corporate social responsibility (CSR) focus on the goodness of CSR for its own sake, but other discussions have at least hypothesized that CSR will bring about benefits to the bottom line. Some of the logic behind this is that companies with a high level of social responsibility are more likely to win business from consumers than companies that do not, and more likely to perform better, in particular where their CSR activities help to breed a better and more loyal workforce.

It can be difficult to draw conclusions with respect to the impact that CSR programs have on profits, for a couple of reasons. The first is that profits vary significantly from one year to the next anyway. The second is that there are a large number of variables that contribute to profits, making it impossible to isolate CSR as an independent variable. Third is that CSR varies with each company. This inconsistency makes it even more difficult to determine what the actual impact on profits that corporate social responsibility activities have.

However, some scholars have started to build out a framework that helps to understand the impact that CSR has on business. Wilburn and Wilburn (2014) examine B corporations. This structure is legal in a number of different jurisdictions in the US and Canada, and comes with an assessment. This common assessment can be used to help structure a definition of social responsibility. Furthermore, with a common measure, it is easier to evaluate B corporations against other corporations in general – comparing a B corporation in an industry against another, but then doing so over the course of dozens of industries to see if there is a pattern. Wilburn and Wilburn largely concern themselves with the mechanics of building out the common measure.

The Wilburn article highlights the challenges in actually measuring the effectiveness of CSR in terms of profits. There is a need to derive a common set of definition around the term CSR, and what it entails, and then measure companies against those values. This must be done before any evaluation of the CSR-dominant companies versus companies without strong CSR programs can possibly be done.

That said, not having a reliable measure doesn’t mean that there isn’t a good case for CSR. In fact, I agree with the stakeholder perspective. I feel that the shareholder perspective misses the mark – corporations affect the world in which they exist. Because of that, they should be evaluated on their impact on that world. This is no different than the moral standard applied to human beings. We are judged not just on how much money we make, but on our other actions as well. If we commit a crime we are punished; if we do good works, we are rewarded. The stakeholder approach is the only reasonable one. Investors are not the only people that put effort into an organization, and they are not the only ones influenced by what the organization does. The shareholder approach, especially the rather austere version put forth by Milton Friedman (1970) to counteract arguments in favor of corporate social responsibility, are narrow in their scope, failing to recognize the breadth of activities and outcomes corporations deliver.